By Phumza Macanda

JOHANNESBURG (Reuters) - After years of an unprecedented boom, growth in South Africa's property industry is slowing sharply, with consumers battered by higher interest and soaring inflation.

Interest rates have risen by 450 basis points since June 2006 and analysts are betting on another rate rise in June, adding further pressure onto struggling consumers.

The commercial bank's prime lending rate stands 15 percent.

The central bank warned last week of a sharp rise in non-performing loans, while highly-indebted poor households are battling to cope with rocketing food and fuel prices.

Household debt stood at a record 77.6 percent of disposable income at the end of 2007, and service costs are rising.

The residential property market has been one of the hardest hit.

Standard Bank's monthly property gauge for March showed the first decline in year-on-year prices in almost 8 years. Price growth hit a high of close to 40 percent in 2004 amid a 3 year boom.

ABSA Bank sees growth dipping 7 percent in 2008.

"We expect the industry to record lower levels of activity and prices to decline towards the end of the year," said Jacques du Toit, senior property analyst at ABSA.

"Higher interest rates combined with the National Credit Act, with its stricter laws, have definitely had a negative impact," he said.

In an effort to curb indebtedness, the government introduced new rules last year to put an end to easy access to loans.

"Activity has really fallen and there are now fewer mortgage approvals. Because the (credit) rules are stricter, people just can't qualify," said Lynette Nicholson, Head of Research at First National Bank (FNB) Home loans.

CRIME AND POWER

It is not just financial constraints weighing on the industry, people are increasingly gloomy and consumer confidence has plumetted to its lowest level in four years.

"One must not underestimate the sentiment factor. Homeowners and potential buyers are being squeezed from all sides," said Herschel Jawitz, CE of Jawitz Properties, one of the biggest estate agency chains in South Africa.

"There is some nervousness about the political transition and crime and (power utility) Eskom. So if you add all those factors, people aren't very hopeful and the property industry has slowed down considerably this year as a result," he said.

Violent crime rates remain high, while a crippling electricity shortage is seen as a threatening growth.

The rise of Jacob Zuma to the presidency of the ruling ANC, with strong backing from unions and communists, has increased worries about whether the new guard will ditch the prudent economic policy that have spurred strong economic growth.

Jawitz said the number of properties sold had also declined, putting some estate agents out of work.

"There's no doubt we've seen a fall-off in the number of sales. If there are less sales, there isn't enough to go by for everybody and you see the number of estate agents dropping and I expect to see more (of that) over the next 12 to 24 months."

Themba Radebe, who started Eluzai Estates in 2006, said conditions have become tougher.

"Properties that used to sell in a month are now taking longer, and bond approval is longer."

Analysts say the sector may only start recovering when interest rates change direction.

However, with targeted inflation racing to double digits for the first time in five years, interest rates are unlikely to come down any time soon.

"We will only start to see a recovery when rates start falling, and we don't see rates coming down until the second half of next year," said FNB's Nicholson.